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U.S. factories hit by shutdown, China production rises

An European Union flag flutters in front of the Parthenon temple in Athens August 20, 2013. REUTERS/John Kolesidis
An European Union flag flutters in front of the Parthenon temple in Athens August 20, 2013. REUTERS/John Kolesidis

By Steven C. Johnson and Jonathan Cable

NEW YORK/LONDON (Reuters) - Factories in China boosted production this month, but U.S. manufacturing output fell for the first time in four years while the euro zone economy lost momentum, surveys on Thursday showed.

The data suggested the world economy is still facing speed bumps as China tries to rebound from a slowdown and as growth in advanced economies remains fragile.

One such hurdle was a partial U.S. government shutdown that lasted for the first 16 days of October. This likely disrupted factory output in the world's largest economy and will probably end up slowing overall U.S. growth in the fourth quarter.

According to financial data firm Markit, U.S. factory output contracted in October for the first time since late 2009 and the overall pace of growth was the slowest in a year.

Markit chief economist Chris Williamson said the survey "suggests that the disruptions and uncertainty caused by the crisis hit companies hard," even if determining the precise impact of the shutdown remains difficult.

The shutdown, the first in 17 years, forced hundreds of thousands of federal employees to take unpaid leave.

Economists expect that put a brake on U.S. growth in the fourth quarter, which was expected to mark the transition to a stronger pace of expansion.

A Reuters poll of more than 70 economists last week forecast gross domestic product growth of 2.3 percent between October and December. The economy grew 2.5 percent in the third quarter.

CHINA RECOVERING, EUROPE STUMBLES

There was some positive news from the world's second largest economy. The Markit/HSBC Purchasing Managers Index for China rose to 50.9 this month from 50.2 in September, the fastest expansion in seven months.

"China's growth recovery is becoming consolidated into the fourth quarter following the bottoming out in the third," said Qu Hongbin, an HSBC economist.

In the first nine months of the year China's $8.5 trillion economy grew 7.7 percent from a year earlier, putting it on track to achieve Beijing's 2013 target of 7.5 percent. But that would still be the weakest growth in 14 years.

The slowdown in Asian economies may last for the rest of this year as weak global growth and reforms in many countries hinder activity, Reuters polls showed on Thursday. Growth in China and India, the two regional powerhouses, will likely languish at multi-year lows.

Growth momentum also slowed in Europe this month. Markit's "flash" Composite Purchasing Managers Index for the euro zone, based on surveys of thousands of companies across the region, showed the economy lost a bit of steam this month.

While the index was still above the 50 mark that separates growth from contraction, it retreated to 51.5 after hitting a two-year high of 52.2 in September.

"We've seen over the last several months a significant improvement in a lot of the business indicators for the advanced economies, but they are still not at particularly high levels by historical standards," said Andrew Kennigham, senior global economist at Capital Economics. "These numbers are suggesting the improvement may be beginning to tail off."

Germany factory activity grew, the PMI survey showed, although the country's service industry saw a surprising fall in the pace of growth. But things were bleaker across the border in France, where manufacturing activity declined at a faster pace and services expansion all but ground to a halt.

"We expect the euro zone economy to remain on a recovery path, but today's weaker-than-expected PMI reading reinforces the view that it will likely be a sluggish and bumpy recovery," said Martin van Vliet at ING.

Markit said the survey points to a 0.1-0.2 percent expansion this quarter, similar to a recent Reuters poll.

(Additional reporting by Natalie Thomas in Beijing; Editing by Chizu Nomiyama)

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